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Both sides of the story

Krishnan Thiagarajan

If the US lowers the H1B visa cap, what will be the impact on the Indian software companies? eWorld checks out both sides of the coin — why Indian companies appear unfazed right now and what could happen.

" ...if you look at the onsite centricity, it has actually been... growing up, but not as large. It was 51 per cent as of March 2002 and as of December 2002, it is 53 per cent. So over the entire nine-month period, it has gone up two points but having said that what we are doing is making sure that we have the ability to have many more employees on an L1 visa and I think that is helping us out. The second is that on the package implementation site, we continue to also hire people locally and I think that prevents us from having to have visa problems and finally... as things stand today, we are lobbying with the governments to make sure that the H1B caps are at levels that we expect them to be." — Wipro's Vice-Chairman, Vivek Paul, responding to a query on the implications of a possible reduction in the H1B visa cap from 1,95,000 to 65,000 from September 2003 during the Q3 earnings call held on January 17, 2003.

IN the US, there has been a raging debate and even protests for the reduction in the annual H1B visa cap from the current levels of 1,95,000 to the historical level of 65,000 which was prevalent in early 1998. As the existing visa cap of 1,95,000 is set to expire on September 30, the US Congress is set to debate the visa cap retention or reduction in May or June this year.

Citing the rampant unemployment in the US, several associations/technology unions such as IEEE-USA, the Washington Alliance of Technology Workers, Technical employees of the AFL-CIO and Programmers Guild have stepped up protests against the liberal H1B visa regime.

Putting up a brave front

Despite these protests, the Indian software companies, specially the frontline ones such as Tata Consultancy Services, Infosys and Wipro, are putting up a brave front. Increasingly (since the September 11, 2001 attacks on the US), it is being rumoured that the processing of H1B and L1 (we will describe this type of visa in a moment) visas is taking time and more cases are being taken up for scrutiny by the US consulate authorities. Except for stray reports, even this aspect has barely created a ripple in software circles so far. From speaking to a cross-section of industry executives, one can attribute the relatively calm stance of frontline software companies to:

  • Public relations campaign: The top Indian software companies have been working with Nasscom, the apex association of the Indian software industry, to lobby and sensitise the US political establishment about the benefits of outsourcing and H1B visas which are an integral part of this exercise.

    For instance, the Executive Committee of Nasscom has appointed Hill & Knowlton, a high-profile public affairs company which has been charged with the responsibility of launching a media campaign, to ensure that H1B visas remain at the existing level of 1,95,000. At the same time, Nasscom is also working with the Information Technology Association of America, one of the passionate advocates of a liberal H1B regime, to keep the H1B visa either at the current level of 1,95,000 or to settle at a median between 1,95,000 and the earlier authorised levels of 65,000.

  • Trend towards offshore: Almost all frontline companies and some second-rung software companies feel that the outsourcing business is increasingly moving offshore to countries such as India. In the past year or so, atleast for frontline companies, the engagement sizes of outsourcing contracts have been rising and offshore has clearly become more mainstream and strategic to the operations of Fortune 500/Global 1000 companies. The reasonably strong growth in revenues between 25-35 per cent by frontline companies also testifies to this trend. This effectively means that a reduction in the visa cap, say to 65,000, will only spur more and more US corporations to direct more work on an offshore basis to India.

  • L1 visas — The escape latch: Atleast among frontline companies, the L1 visa is being increasingly used as a good alternative to H1B visas. Technically, L1 is an intracompany transfer visa valid for seven years. So as long as Indian companies have subsidiaries or branches or affiliate companies in the US, they can use the L1 visa. After all, in the early 1970s, this visa was introduced to allow US companies to import employees from foreign subsidiaries, affiliates or parent companies. Currently, to be eligible for the L1 visa, the employee must be offered a position in the US as either a `Manager,' `Executive' (under L1A category), or a person with `Specialised Knowledge' (under L1B category). And the biggest advantage of this visa to Indian software companies is that, at present, there are no limits to the issue of such visas annually.

    Concerns remain

    Even though these factors ensure a measure of comfort, for the industry as a whole, the following concerns will remain:

  • Economic recovery: In the last two years, 2001 and 2002 ( October-September year for annual visas), the H1B visas were not fully used up. For instance, in 2001, the US Immigration and Naturalisation Service issued 1,63, 600 visas and in 2002, only 79100 visas were issued as against the annual visa cap of 1,95,000. But if the visa cap were reduced to 65,000, a bounce-back in the US economy, say in end-2003 or 2004 may result in a loss of business opportunities for Indian companies. Moreover, even in an extremely weak economic environment in the US, it utilised 79100 visas, higher than the proposed limit of 65,000 from September 2003. In this scenario, some medium-sized and small-sized companies who may not satisfy the criteria for use of L1 visas will suffer badly.

  • Onsite projects: The Indian software companies have required an onsite presence for two reasons. One, to undertake trial projects in the initial phase of client engagement and post-project maintenance or support work for clients. And two, to undertake work which is higher up the value chain such as package implementation, systems integration or process consulting. Almost all the frontline companies have derived more than 50 per cent of their revenues from onsite projects. This may also be applicable to the industry as a whole. If the proposed visa cap is reduced to 65,000, it is likely that companies will have to maintain a higher onsite bench to counter this problem. This will have an impact on their operating margins going forward. Frontline companies with their ability to hire local people and use L1 visas to send people onsite may be better placed than the rest of the sector. But over a two-year time frame, a higher wage and higher attrition levels will begin to impact their operating margins also.

  • L1 visa pressures: Increasingly, attention is shifting towards the underregulated L1 visas. Some of the technology associations/unions, magazines — both print and Net-based such as Computer World, Information Week or eWeek in the US have removed the cloak of anonymity surrounding these visas. From the SEC filings in the US, it is apparent that frontline companies such as Infosys, Wipro and Satyam have been using the L1 visas quite extensively. For instance, both Wipro and Satyam have used a higher number of L1 visas compared to H1B visas. It is likely that with an aggressive posture employed by anti-immigration lobbies, there may be some action on the L1 front also such as a cap of the L1 visas and more stringent conditions for visa issuance.

    maverick@thehindu.co.in

    This is the second and concluding article of the two-part series on the H1B visa cap issue in the US. The first article appeared in eWorld dated April 16, 2003.

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